Financial Decision Making: Accounting and Finance Functions, Sources of Finance, and Ratio Analysis of Panini Ltd.

This report discusses the importance of accounting and finance functions, duties, and roles within a business organization. It also describes the sources of finance through which small businesses and enterprises can avail funds. The report includes a financial ratio analysis of Panini Ltd. for the years 2018 and 2019, evaluating ratios such as gross profit margin, operating profit margin, return on capital employed, current ratio, quick ratio, inventory turnover days, receivable collection period, and payable payment period. The report analyzes and interprets the results obtained from the financial ratio analysis and states the reasons and causes responsible for the changes in the financial ratios for the year 2018 and 2019.

FINANCIAL
DECISION MAKING

Contents
Introduction...........................................................................................................................................4
Task 1....................................................................................................................................................4
Assess the relevance of accounting and finance functions, duties and roles within the business
organization.......................................................................................................................................4
Describe the sources of finance through which small business and enterprises can avail funds........6
Task 2....................................................................................................................................................8
Evaluate the following ratios.............................................................................................................8
Analyze and interpret the result obtained from the financial ratio analysis that are calculated above.
Also state the reasons and causes responsible for the changes in the financial ratios for the year
2018 and 2019...................................................................................................................................9
CONCLUSION...................................................................................................................................11
References...........................................................................................................................................12

Executive Summary
Accounting is an art of recording, classifying, interpreting & analyzing and
summarizing the financial data so that the correct and accurate financial position of a
business enterprise is ascertained. Finance is also important for each and every business in
order to meet its future requirements. The upcoming report highlights the monetary ratios and
its interpretation on the company Panini Ltd.

Introduction
Accounting plays an important role to provide the financial information. It is an art of
recording the day- to – day business transactions in the books of accounts which provides
useful knowledge on the company’s condition of assets and liabilities. Finance functions
gives the financial information to the other companies in order to carry its operations
smoothly and effectively (Ahmed., 2020). The following report looks into the importance of
accounting and finance functions. Furthermore, it comprises the details on the sources of
finance. Moreover, this report has been prepared for the Panini Ltd. company that holds the
fiscal ratio analysis for two consecutive years 2018 and 2019. Ratios have been determined
from the financial data provided in the case. These derivations have been done in respect to
the profitability, financial stability, management effectiveness and procedures of the business.
Task 1
Assess the relevance of accounting and finance functions, duties and roles within the business
organization.
Accounting is the process of identifying, measuring, communicating economic
information to permit informed judgements and decisions by the users of the information. It
is the systematic record of information that involves analyzing, classifying, summarizing and
interpreting business transactions.
Finance is obviously connected with almost all the activities of a business enterprise be it a
marketing activity, production activity sales or other. If there are no funds the tasks
associated in the different departments will come to a halt. To understand the applicability a
firm requires finance function. (Hua-Wei., 2018)
Importance of Accounting:
 It avoids the limitation of memorizing power: Accounting assists the organization to
record its transactions in the reports. It is not at all possible for the firm to keep each
and every record in mind as there are large number of settlements that occurs in the
business concern, So, the accounting neglects this limitation and help the company to
access records whenever it is needed.
 It helps in meeting the legal requirements: By keeping the appropriate record of the
transactions that are in terms of cash. The company can be answerable to the law and
tax authorities in case of any mishaps.

 It helps in the evaluation of profit and loss: Profit generation is the main objective of
any business. In any company, the firm comes up with two results either it is profit or
a loss. So, it is much for an organization to keep the maintaining the records by
following the accounting principles for the correct ascertainment of profit and losses
that it has obtained.
 It assists in the calculation of business’s financial position: The accounting data is
summarized into the financial statement called balance sheet. It comprises of two
columns i.e., the assets and liabilities. The assets are those what a business owns and
liabilities are those that it owes to the other parties. By this data the company can
calculate the position of its assets and liabilities.
 It helps in the assessment of tax: Business man have to pay for lot of taxes like
income tax, excise duty, custom duty etc. If the accounts are maintained in a proper
manner, then it can help the company to pay reliable taxable amount. If not recorded
in an appropriate way, then the tax authorities will estimate the taxable amount
themselves.
 It provides information on the debtors and creditors: It is so vital to make accounting
records. So, that a business enterprise can evaluate the amount that it has to receive
and pay to the other parties.
 It gives assistance in taking the managerial decisions: The accounting reports helps
the managers to take the decisions regarding sales, purchase and replace. It can be
done when the manager examines the data and rectify the grounds. Also, this data
helps the external users to make accurate informed decisions regarding investments,
repaying capacity of a firm etc.
 Evidence in the court of law: There can be cases when there an argument between the
two parties arises. In such scenarios, the company must have the written statements to
justify itself in front of the court. So, that the court makes justifiable decision
(Demirel and Danisman., 2019)
Finance Functions: Finance functions involves the presumption on whether the company
shall make more investments in the physical assets or not. They play a huge role as finance is
the backbone for any business enterprise and its need to managed effectively and efficiently
to meet the future requirements and uncertainties. Nothing is possible without the funds, so it
orders to keep the company’s operations running in a smooth manner the flow of money shall

be controlled, directed and managed. The relevance of finance functions can be listed as the
following:
 Planning: Finance function helps the company in making plans through budgets
where it allocates the costs for the future activities and this budget creation helps in
the achievement of goals and objectives. The budget creation also assists the
companies in setting the relevant targets.
 Forecasting: Finance functions has its significant role in the as the company can make
projections on the sales and material prices. This forecast helps the business
organization in setting up the target ad make good use of its fiscal resources.
 Resource allocation: It will help the firm in determining that which resources will be
useful to the company in order to attain the desired or stated objectives.
 Performance Management: The function creates appropriate performance mechanism
and an assistance to monitor such results. It also enables the business to ensure that
the activities are being performed according to the plans and budgets that were
framed. (Lambert, Herbert and Rothwell., 2020)
 Controlling: The function assists the business enterprises to control the activities that
takes place in the distinct departments of a company. Because, it allows the business
to match the actual accomplished results with the budgeted performance. The
company can compare both and find out the deviations and results for such deviation.
The controlling tool thus helps the firm to motivate the employees to do better, as it
finds the certain grounds where the company is lacking.
 Financial Reporting: The finance function enables the managers or the finance
administration to create the comprehensive reports. These reports are used by the
shareholders, creditors, suppliers, investors and other parties to take informed
decision regarding the investments, lending etc. Thus, in this way finance function
creates and protect the value.
Describe the sources of finance through which small business and enterprises can avail funds.
Finance is an important aspect for organizations and individuals as well. In the
business it is really vital because it is required for the purpose of continuing the business
operations. Lack of the finance can lead to the negative consequences and insolvency position
that a company will have to face. There are various sources through which the business
organizations can avail funds. But when it is considered about the fund reaching the small
business do not succeed because they not have enough reach and large companies find it very

risky to lend money to the small businesses. Instead of the facts stated, there are various
sources that a small and medium firms can use:
Trade credit: The firm shall look for those suppliers who are willing to supply the raw
materials in credit. This loan may range from one month to three months. It is the simplest
way to get funding help because no long procedure is involved and is also inexpensive. By
this method the company can fulfill its short – term needs and requirements.
Venture capital: It is a kind of private equity firm. In this the venture capital firms invest their
money in the new or coming- up companies. And they exchange the money for the ownership
in shares.
Crowdfunding: It is a mechanism of borrowing small amount of money from so many people.
The main advantage of this method of raising finance is that when the businesses have to
meet the short – term requirements then it can make flexible proposals as per their needs.
Own capital and savings: For funding purpose the owner can use its personal financial
resources like fixed deposits, jewelry, stocks, mutual funds etc. The person can even sell the
assets to make money so that it can be used in an organization. The businessman shall invest
in their firm only in the form of equity capital etc.
Bank Loans: There are financial institutions that have departments that deals in giving the
loan facilities to the small firms. For opting loan from this origin, the business will have to
meet the minimum criteria of bank to get the loan. Banks check the repayment potential,
credit score before providing the loan. Company can choose the kind of loan it wants and
repay the amount with the interest implemented on that particular value.
Private Equity Firms: These are not listed in the stock exchange. In this the firm raises
finance from the investors. And then the money that it has gained from the investors is then
applied to buy the capital share of the businesses. The main drawback associated with this
type is, the business owner loses the sole control to take decisions, which later ight even
result to the problematic conditions. (Lewin and Cachanosky., 2021)

Task 2
Evaluate the following ratios.
1. Gross profit margin: Gross profit/ Net sales * 100
2018: 3500/ 10000 * 100 = 35%
2019: 3265/ 11500 * 100 = 28.39%
2. Operating profit margin: Operating profit/ Net sales * 100
2018: 2765/ 10000* 100 = 27.65%
2019: 2305/ 11500* 100 = 20.04%
3. Return on capital employed: Earnings before interest and tax/ Share equity + Long
term liabilities * 100
2018: 2765/ 8755= 31.58%
2019: 2305/ 10211* 100 = 22.57%
4. Current Ratio: Current assets/ Current liabilities
2018: 1175/ 970 = 1.211: 1
2019: 2110/ 512 = 4.12: 1
5. Quick Ratio: Current assets – Inventory / Current liabilities
2018: 1175 – 350/ 970 = 0.85: 1
2019: 2110 – 675/ 512 = 2.80: 1
6. Inventory turnover days: Cost of goods sold / average inventory
2018: 6500 / 350 = 13.57 times
2019: 8235 / 512 = 16.08 times
7. Receivable collection period: 365 / sales on credit / accounts receivable
2018: 365 / 10000 / 760 = 27.74 days
2019: 365 / 11500 / 1340 = 42.54 days
8. Payable payment period: 365/ cost of sales / trade payable
2018: 365 / 6500 / 920 = 51.6 days
2019: 365 / 8235 / 707.5 = 31.36 days

Analyze and interpret the result obtained from the financial ratio analysis that are calculated
above. Also state the reasons and causes responsible for the changes in the financial ratios for
the year 2018 and 2019.
From the above calculations the variations can be seen in accordance with the
profitability, liquidity and efficiency of the Panini Ltd. The reasons behind each are noted
below:
1. Gross Profit Margin:
 The declination in the gross profit margin for the Panini Ltd. is observed in the
year 2019 as compared to that of 2018, this might be due to the increase in the
cost related to goods sold.
 Secondly, the fall in the selling price of commodities and services has resulted
in the less amount of sales revenue earned which has led to the less potential
to create profits for the year 2019. So, it is recommended that the company
must control its cost linked with the sales and increase the price for a product.
2. Operating Profit margin:
 As per the scenario the company is not facing any hurdle in 2018. Because
operating margin is really high it signifies that the business firm had good
capability to generate money from its company’s operations and this finance
has helped the Panini Ltd. to make payment for the maintenance cost.
 There is a decrease in the margin which indicated that the company is making
lot of operating and non- operating expenses.
 To bring hike in this margin the Panini Ltd. shall reduce the unnecessary
expenses and make optimum utilization of the available resources.
3. Current Ratio:
 The C.R. derived in 2018 is not at all favorable to the company because it
clearly states that the company has failed in meeting its short – term
obligations with its available current assets. This means that the company has
taken more short -term debts or have not used its C.A. in proper way.
 In the second calculation for 2019, the determined value is more than the ideal
ratio. It is the good indication and states that the company has the good
potential of meeting its current liabilities. The reason behind the increase is
that the company has sold its assets that were of no longer use.

4. Quick Ratio:
 For both the years it is favorable and states that the company has the potential
to pay its short- term obligations and commitments without selling its stock
and is in a good liquidity position. The reason behind the rise in this ratio is
the increase in sales and inventory turnover.
5. Return on capital employed:
 Increase in the obligations and debts of the business: There is a fall in the
ratio. This is because of the company is not making enough money out of its
fixed assets. To come out of this problem the Panini Ltd. should keep an eye
on the factors that are creating inefficient and ineffective results. Also, it shall
lower its debts in order to stand in the market for a long run.
 Shall make good use of capital assets: It indicates that the company is not
making proper strategies to make use of its assets at best as possible.
6. Inventory Turnover ratio:
 The rise in the stock turnover ratio can be because of the two reasons. The one
is that the Panini Ltd is playing great in selling its product or it is able to
manage its stock in a successful way. The second cause can be that it has lot of
old stock in its warehouse.
 If it is the second reason, then the company is required to sell its old inventory
and shall opt for strong pricing strategy to sell its leftover stock.
7. Receivable Collection Period:
 The collection period is increasing and it is not favorable for the company.
The Panini Ltd. should look for the communication strategies where it can
convey the strict policies regarding the payments that it has to receive from
its debtors. The reason behind the increase is that the debtors are not able
to pay the money on time.
8. Payable Payment Period:
 The decrease in the payment period clarifies that the company is able to
make timely – payment to its creditors and this will help the company in
holding its image in front of the interested parties.

CONCLUSION
Thus, it can be concluded from the above report that accounting is the foundation
stone on which a business stand. Finance functions play a major part in the management of
funds and money in the organization. Furthermore, the report also clarifies the venture
capital, bank loans, private equity firms, crowdfunding are the sources of finance for small
enterprises. It also tells the ratio analysis and the reasons behind the fluctuations of such
ratios.

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